Well in today’s fastidious generation, almost everyone does own several credit cards as money has always been the utmost power. Debt consolidation in today’s generation is the main component of banking. For a normal lay man, it comes like aspirin to a dead man. Debt consolidation today is essential but first the customer must know its pros and cons to avail its benefits. Let’s give a brief glance over it. Firstly, let us try and understand what debt is.
What is Debt?
Debt is any amount that the borrower has to pay the one he has borrowed it from. All the money that one is liable to pay is termed as Debt. Debt could be of various types and amounts, but the one borrowed from the banks always come with timeline. The customers borrow money from the banks through their credit cards, for various purposes like shopping, travel, medicine etc. The bank then provides them a due date for fulfilling the amount. Thus, the customer then becomes to liable to pay back to the bank within a limited time period with a definite rate of interest. It is not necessary that the customer will do that from one bank; a customer may even borrow from various banks and have a lot of debt accumulated, to be paid off at different rates of interest. When the debt is accumulated and thus has to be paid off in bulk, there arises a need to consolidate the debt.
Also Read – Your Options To Get Out Of Credit Card Debt
What is Debt Consolidation ?
Debt consolidation means refinancing the debt, that entails the provision of taking one loan to pay off many others that might be liable for the customer to be paid to the bank. Debt consolidation is a comprehensive project; this commonly pertains to a personal financing process of individuals. It is primary in addressing the high consumer debt, but, also refers to a country’s fiscal liabilities in terms of corporate debt or Government debt. The process secures for its customers, a lower overall interest rate to be paid for the entire debt borrowed and also provides the valuable convenience of servicing only one loan at one time. Thus, consolidation of debt is one way to turn several loans into one. Rather than paying various loans at different rates of interest, the banks entitle the customer to pay just one, that too at a limited rate of interest.
Benefits of Debt Consolidation
Debt consolidation makes debts easy:
Debt consolidation makes it easier for the customer to pay off his debts through one comprehensive loan rather than paying it off through various loans which levy heavy rates of interest. Debt consolidation avails the customer a facility to pay off their credit card debts through one loan where the bank consolidates all the loans of the customer into one and nullifies all the various rates of interest that the customer had been paying initially and makes it one which could be easily paid off by the customer. Thus, instead of paying several amounts separately the customer now operates one loan without bothering about all the different ones.
Makes Calculation Easy:
Debts could be tedious to pay off. Whenever it comes to paying off debts, one has to be very particular and regular about the deadlines imposed by the bank and also that the amount paid is correct. Banks do calculate the amount for its customers but it is very necessary for the customer too, to know how much amount has to be paid to whom. Hence the customer keeps the track of the amount to be paid to each bank making it hard for him to maintain an account. Consolidation of debt takes off that hassle where the bank itself consolidates all the loans into one, making it their headache to pay off all the rest of the loans. Thus, consolidation of debt makes it easy for the customer to calculate since the headache is reduced to just one loan. Consolidation helps the customer to rely on one bank without traveling across the various to maintain a detail of his debts. The bank takes in account all the details and provides the customer one fixed amount to be paid, each month with a minimal rate of interest which is decided as per the customer’s credibility.
Helps you compare amongst different banks:
Consolidation helps you compare amongst different banks, as the banks are many but there are a few which offer a very low rate of interest. Thus, a customer prefers the bank which offers a lower rate of interest. Consolidation gives customers a chance to pay off their debt at a lower rate of interest which is decided as per the preferences of the customer without making him indebted with the thrust of exorbitant sum of money. The customer compares different banks and their different rates of interest offered and hence decide which one suits the best. This helps the banks lower down their rates of interest in lieu of the others to curb the competitive spirit.
Helps the customer build up a good credit score:
Consolidation helps a customer build up one comprehensive loan, which levies one rate of interest which is comparatively lower than paying off several rates of interest. This helps customer build up a good credit score since the customer is no longer liable to pay off several amounts which make him indebted to a huge sum of money which might be difficult to pay off. Also, paying off several rates of interest makes a customer liable to higher amounts of rate of interest. Paying off one amount makes the customer easy with his debt and hence he pays on time, making his credit score reach to a good number. Credit score is a score by which a bank judges a customer’s performance in paying off their dues. A good credit score helps a customer build up a good reputation and hence the banks lend money to the customer much more easily. Thus, it is necessary to have a good credit score.
A lower rate of interest:
Consolidation of loan is necessary as it helps the customer to lower down its rate of interest as per his needs. Paying off several loans to different banks always demands more money as every bank has a different policy and a different rate of interest. This makes it heavy for a customer to pay off his loan as per the requirement and the deadlines set by the bank. Consolidation helps the customer choose a particular rate of interest according to what suit him and has to pay only for one single loan. The bank holds the responsibility to pay off all the loans of the customer in lieu of the one consolidated loan but the banks also takes in consideration a guarantee from the customer to not to spend more from the credit card. Thus, the customer can set up the norms as per his needs and requirements with the bank which helps both the bank and the customer.
Also Read: Credit Card Debt Settlement Process
Consolidation of loan is thus very fruitful and beneficial who find it hard to calculate and find out the amount of the rate of interest and also the installment to be paid each month. Also, it relieves the customers from heavy rates and exorbitant amounts of money. To make money grow faster and to deal with it easily without any fraudulence it is important for the customers to take up the credit card bill consolidation.